Submitted To:

Taskin Shakib (Tks)

Department of Accounting and Finance
School of Business & Economics
North South University

Fin410
Final report
“Financial statement analysis of Apple Inc. and Olympic industries ltd”
Section: 01, Semester: Spring 2019

Name ID
Joyanta Pal 1620925030
Anup Chakma 1632875030
Md. Mohiuddin Rafsun 1620347030
Aminul Islam 1620530030

Submission Date- 5th May 2019

1
Taskin Shakib
Lecturer
School of Business & Economics,
North South University

Subject: Financial statement analysis of Apple Inc. and Olympic industries ltd”

Dear Sir,
With great pleasure we are submitting our project on “Financial statement analysis of Apple Inc.
and Olympic industries ltd”. We have concentrated on the successful completion of our report. It
was our great opportunity to get a chance to work on this challenging project and to complete the
report in time. We are very grateful for your guidelines and lessons.
We have tried to put our best effort for the preparation of this report. Yet if any shortcomings or
flaws arise, it will be our pleasure to answer any clarification and suggestion regarding this report.
Yours Sincerely,
Joyanta Pal
Anup Chakma
Md. Mohiuddin Rafsun
Aminul Islam

2
Executive Summary

This report emphasizes on ratio analysis of Apple which is an international company. It highlights
the overall performance of Apple in terms of several factors. Financial ratio analysis is a necessary
tool used by accountants, analysts and managers to simplify the financial statements. The short
term solvency ratio and the long term solvency ratio are in a moderate state because there is no
drastic fluctuation. It is assumed that they have enough current assets to pay-off the current
obligations. On the other hand the total debt ratio is gradually increasing. If Apple want they can
improve debt ratio by decreasing long term debt which will lead to increase in ROE. Another
important ratio is D/E ratio which indicates incremental trend of dependency on debt. There is also
no significant fluctuation in total asset turnover, average payable turnover and average receivable
turnover. In 2018 the NWC has decreased compare to 2015 which should be improved as soon as
possible. The Net Profit Margin has also decreased in 2018 compare to 2015 but it has increased
compare to 2016 and 2017. And the operating profit margin illustrates a negative trend in operating
profit because of increase in operational expenses. In addition, ROE of Apple depicts a positive
trend unlike ROA. However the P/E ratio illustrates that the overall price of Apple share is in a
stable state whereas the EPS ratio depicts a positive trend because it has been gradually increasing
from 2015 to 2018. From an investors perspective it is quite clear that Apple is not performing
very bad or very good. It is in a stable condition. The overall impression about the performance of
Apple is quite good. The EPS ratio of Apple evaluates an incremental trend which is auspicious
for investment. So it will be a bad decision to invest in Apple.

Another important part of this report is valuation of Olympic group which is a local company of
Bangladesh. The purpose of this report is to get the projected CFFA (Cash flow from assets) of
Olympic. The pro-forma statement is prepared by using SGR (Sustainable growth rate) which
takes into account the external financing. The projected FCFs of Olympic doesn’t depict a positive
trend which actually shows a decrease in FCFs. It should be improved by increasing cash flows
from operations and efficient management of net working capital. The total cost of Olympic is
approximately 6%. The enterprise value of the company is nearly BDT 331,152,637,211.
Furthermore the fair value of equity is about BDT 238,045,196,888 without the market value of
debt which is BDT 93,107,440,322.14. However the fair value of equity can be augmented via
improving CFFAs, productive management of NCW and investing wisely in fixed assets.

3
 Contents
Executive Summary ...................................................................................................................................... 3
Financial Ratio Analysis of Apple Inc. ......................................................................................................... 6
LIQUIDITY RATIOS .............................................................................................................................. 6
Quick Ratio .......................................................................................................................................... 7
Cash Ratio ............................................................................................................................................ 7
Turnover Ratio.......................................................................................................................................... 8
Inventory Turnover ratio ...................................................................................................................... 8
Day's Sales in Inventory ....................................................................................................................... 9
Accounts Receivable Turnover ............................................................................................................ 9
Average Collection Period ................................................................................................................. 10
Accounts Payable Turnover ............................................................................................................... 11
Average Payment Period .................................................................................................................... 11
Net working capital turnover.............................................................................................................. 12
Total Assets Turnover ........................................................................................................................ 13
Fixed assets Turnover......................................................................................................................... 13
NWC to Total Assets.......................................................................................................................... 14
LONG TERM SOLVENCY RATIOS .................................................................................................... 15
Total Debt ratio .................................................................................................................................. 15
Debt/equity ratio................................................................................................................................. 16
EM= (Total Assets/Total Equity) ....................................................................................................... 16
Long term solvency ............................................................................................................................ 17
PROFITABILITY RATIO ..................................................................................................................... 18
Net Profit margin................................................................................................................................ 18
Gross profit margin ............................................................................................................................ 18
Operating profit margin ...................................................................................................................... 19
Return on asset ................................................................................................................................... 19
Return on Equity ................................................................................................................................ 20
COVERAGE RATIOS ........................................................................................................................... 21
Times interest earned ......................................................................................................................... 21
Cash coverage .................................................................................................................................... 21
MARKET RATIO .................................................................................................................................. 22
P/E Ratio ............................................................................................................................................ 22
Earnings per share .............................................................................................................................. 23

4
Valuation of Olympic industry limited ....................................................................................................... 24
Forecasted free cash flow: ...................................................................................................................... 24
The sustainable growth rate for the cash flows are given blow: ............................................................. 24
Calculating Beta: .................................................................................................................................... 25
Weighting average cost of capital (WACC) calculation: ....................................................................... 25
Calculation of entire company value: ..................................................................................................... 25
Calculating EV for Olympic indirectly limited ...................................................................................... 26
Fear value of the company: .................................................................................................................... 27
Limitations .................................................................................................................................................. 27
References ................................................................................................................................................... 29
Appendix ..................................................................................................................................................... 29

5
 Financial Ratio Analysis of Apple Inc.

LIQUIDITY RATIOS

Current Ratio

Current ratio

1.35 1.28
1.5 1.11 1.12

0.5

0
Current Ratio = CA/CL

2015 2016 2017 2018

Apple had a current ratio of 1.11 in the year 2015 and a slightly bigger current ratio of 1.35 in the
year 2016. It means that Apple could pay off their current liabilities 1.11 times in 2015 and 1.35
times in in 2016 with their current assets. But in 2017, the current ratio of Apple had slowed down.
In 2018, the current ratio of Facebook fell to 1.12 which is significantly lower than the previous
years. It occurred because of the significant increase in short term liabilities in 2018. A high current
ratio is good for the company in that it has high liquidity, but if it is too high it indicates that the
company has more low paying investments.

6
 Quick Ratio

QUICK RATIO

1.33
1.23
1.4
1.08 1.09
1.2

0.8

0.6

0.4

0.2

0
B) Quick Ratio = CA - Inventory/CL

Like the current ratios, the quick ratio for Apple sends a good signal. The graph is
almost similar to the one of current ratio. It indicates that the Apple has sufficient
amount of current assets than current liabilities without selling its inventories. The
present value of
1.09 is above the industry average thus delimitate a transparent picture.

Cash Ratio

Cash Ratio

0.3 0.26 0.26

0.25 0.22
0.2
0.2

0.15

0.1

0.05

0
2015 2016 2017 2018
Cash Ratio = Cash/ CL 0.26 0.26 0.2 0.22

Cash Ratio = Cash/ CL

7
The cash ratio is another indication of liquidity and it uses the most liquid asset to measure liquidity
– cash and cash equivalents. The cash ratio for Apple was 0.26 in 2016 and remain constant in
2016 and decreased by 0.20 in 2017 and in 2018 increased by 0.22 respectively. The increase in
the current liabilities resulted in the decline of the ratio. Though the current ratio increased in 2015
from 2016, the cash ratio decreased because there was decline in the cash amount in 2017 besides
the increase in current liabilities. The fact that ratio is above 1 means that Apple can’t pay off its
current obligations with its cash which indicates that Apple is not highly liquid company.

Turnover Ratio

Inventory Turnover ratio

Inventory Turnover ratio

70 59.64 61.62
60
50 41.39
40
29.05
30
20
10
0
2015 2016 2017 2018
) Inventory Turnover ratio =
59.64 61.62 29.05 41.39
COGS/INVENTORY

) Inventory Turnover ratio = COGS/INVENTORY

In the analysis, we recognize that from 2015 to 2016 year, the inventory turnover of Apple had
held a favorable image. Though in the year of 2017, the turnover over of inventory had lowered
by 29.05 due to taking longer to process its inventory to finished goods. Though in 2018, the
inventory turnover of Apple further rose by 41.39 due to taking short time to process its inventory
to its finished goods.

8
 Day's Sales in Inventory

Day's Sales in Inventory

12.56
14
12 8.82
10
8 6.12 5.92
6
4
2
0
2015 2016 2017 2018
) Day's Sales in Inventory =
6.12 5.92 12.56 8.82
365/Inventory Turnover

) Day's Sales in Inventory = 365/Inventory Turnover

Apple Corp. had gone through a nice day’s sales in inventory ratio on 2015 to 2016 which was
6.12 and 5.92. That means the inventory days of Apple in the year of 2015 & 2016, had taken a
smaller number of days for inventory to convert into finished products. Though, in 2017, the
inventory days rose up by 12.56 which indicates that inventory used up every 12.56 days on an
average and is restored to its original level. But in the year of 2018, the turnover of inventory days
reduced by 8.82 which is really good for the Apple to take less time to convert into finished goods.

Accounts Receivable Turnover

Accounts Receivable Turnover

7.7 7.36
8
6.43
7
5.42
6
5
4
3
2
1
0
2015 2016 2017 2018
Accounts Receivable Turnover =
7.7 7.36 6.43 5.42
Sales/Accounts Receivable

Accounts Receivable Turnover = Sales/Accounts Receivable

9
From this ratio analysis we acquire that the ratio of accounts receivable turnover is continuously
increasing from 2015 to 2016 in Apple Corp. It indicates that Apple’s account receivable is
increasing day by day and for Apple that is a good position because higher receivable turnover
implies higher frequency of converting credit sales into cash, which is good. Though from the year
of 2017, the turnover ratio of receivable slightly decreased which is not good for Apple Corp.

Average Collection Period

Average Collection Period

67.33
70
56.8
60 49.59
47.39
50
40
30
20
10
0
2015 2016 2017 2018
Average Collection Period =
47.39 49.59 56.8 67.33
365/Receivables Turnover

Average Collection Period = 365/Receivables Turnover

The average collection period for Apple was 47.39 days in 2015. It increased to 49.59 days in 2016
and in 2017 it’s further increased to 56.8 then had again increase to 67.33 days in 2018. A higher
average collection period is generally seen as not favorable. This ratio indicates the average
number of days it takes for a company to collect its receivables from its debtors. It means that in
2018 it took Apple Corp. 67.33 days on average to collect its dues from its debtors which is still
slightly more time than it took in 2017 which indicate that Apple Corp. is not doing good job in
collecting its receivable.

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 Accounts Payable Turnover

3.95
Accounts Payable Turnover
4
4
3
3
2

0
2015
2016
2017
2018
2015 2016 2017 2018
Accounts Payable Turnover = Credit
3.95 4 3 3
Purchase/Accounts Payable
Accounts Payable Turnover = Credit Purchase/Accounts Payable

From the Analysis we admire that in Apple Corp. the accounts payable turnover has remain
constant from 2015 to 2016. Though from 2017 the turnover ratio has been declined from 4 to 3
and remain constant to 2018 which means the company maintained a low account payable from
2017 to 2018. So, we can say that Apple Corp. paid their accounts payable in a lengthy period
from 2017.

Average Payment Period

Average Payment Period

140

120

100
80

60

40

20

0
2015 2016 2017 2018
Average Payment Period = 365/
92.31 103.78 112.32 125.26
Accounts Payable Turnover

Average Payment Period = 365/ Accounts Payable Turnover

11
In 2015, the average payment period for Apple was 92.31 days. In 2016, the average payment
period increased to 103.8 days and again it had an increase to 112.32 days in 2017 and in 2018 it
had an increased to 125.26. In the case of average payment period, it is better for the company if
the ratio is higher. It indicates the average number of days it takes the company to pay its dues to
its creditors/accounts payable. Therefore, Apple Corp paid off its accounts payable in an average
of 125.26 days in 2018 which means Apple paid off its payable to their suppliers in 125.26 days.

Net working capital turnover

Net working capital turnover

Net working capital turnover = Sales/NWC

30

25

20

15

10

0
2015 2016 2017 2018
Net working capital turnover =
26.66 7.74 8.24 18.35
Sales/NWC

The networking capital turnover ratio of Apple Corp. indicated that in 2015 the turnover ratio was
26.66 but in 2016 and 2017 the ratio declined at 7.74 and 8.24. Though the ratio had begun to rise
as 18.35 in 2018. Gradually, this high turnover ratio showed that company’s management were
being very expert in using a company’s short-term assets and liability’s for supporting sales. The
relative low number of ratios in 2016 & 2017 indicated that Apple Corp. was invested in too many
inventory and account receivables to support its sales, which then lead Apple Corp. to an excessive
amount of bad debts.

12
 Total Assets Turnover

Total assets Turnover

0.8
0.73
0.8 0.67
0.61
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2015 2016 2017 2018
Total assets Turnover = Sales/Total
0.8 0.67 0.61 0.73
assets

Total assets Turnover = Sales/Total assets

The total asset turnover of Apple has been decreasing over the year of 2016 & 2017. In 2015, the
turnover ratio was 0.80, while it decreased to 0.67 in 2016 and 0.61 to 2017. It means that in 2018,
for every $1 of assets, Apple was generating $0.73 worth of revenue. A relatively higher asset
turnover ratio than 2016-2107 indicates that the company is using its assets efficiently to generate
sales. But Apple has a pretty low asset turnover ratio because most of its assets are short
term/current, so it’s not using its assets efficiently. But in 2018 their asset turnover is increasing
which is good.

Fixed assets Turnover

Fixed assets Turnover

1.16 1.13
1.2 1.01 0.93
1
0.8
0.6
0.4
0.2
0
2015 2016 2017 2018
Fixed assets Turnover = Sales/Fixed
1.16 1.01 0.93 1.13
assets

Fixed assets Turnover = Sales/Fixed assets

13
In this graph, we see that the fixed asset turnover ratio was high as 1.16 times in 2015 in Apple
Corp. However, it declined to 1.01 times in the following year in 2016. And in 2017 the number
was further decreased by 0.93 times. Though, in 2018 the fixed asset turnover ratio of Apple corp.
had begun to rise by 1.13 times. Basically, Fixed asset turnover measures the effectiveness of the
company in generating sales from its investments in plant, property, and equipment. The relative
declined from the year 2016 to 2017 occurred because sales and net fixed assets the increase of
company. Though in 2018, the company’s fixed asset turnover rose up by 1.13 which showed that
Apple corp. used its fixed assets to generate sales more than its competitors.

NWC to Total Assets

NWC to Total assets

0.09
0.09
0.08 0.07
0.07
0.06
0.05 0.04
0.04 0.03
0.03
0.02
0.01
0
2015 2016 2017 2018
NWC to Total assets = NWC/TA 0.03 0.09 0.07 0.04

NWC to Total assets = NWC/TA

The working networking capital to total assets indicates the ability of a companies to cover its
short-term financial constraints by comparing its total current assets to its total assets. In 2015,
the working capital to total assets of Apple was 0.03 which further rose in 2016 by 0.09 and again
declined to 0.07 in the year of 2017. Though the number decreased as 0.04 in 2018. The graph
showed that in 2016 the working networking capital to total assets of Apple was high which means
the company had the ability to match its account payable obligations on time and supplier prefer
to held relations with such company who would make payment on time. But compare to 2015, in

14
2018 the number decreased as 0.04 which was not so good for the company because it implies
serious cash flow difficulty for Apple Corp. with the company wasn’t able to make payments to
its suppliers and creditors on time eve when it made profit and had assets to cover its liabilities.

LONG TERM SOLVENCY RATIOS

Total Debt ratio

Total Debt ratio

0.8 0.71
0.64
0.59 0.6
0.6

0.4

0.2

0
2015 2016 2017 2018
Total Debt ratio= (TA- TE)/TA 0.59 0.6 0.64 0.71

Total Debt ratio= (TA- TE)/TA

The debt ratio for Apple Corp. was 0.59 in 2015 and it increased in the next three years to 0.60
and 0.64 and 0.71 in 2016, 2017 and 2018 respectively. Even though it has increased, the debt ratio
is very low because Apple has no long-term debt. The increase was because of the increase in
accounts payable and other current liabilities

15
 Debt/equity ratio

Debt/equity ratio
2.41
2.5
1.8
2 1.43 1.51
1.5
1
0.5
0
2015 2016 2017 2018
Debt/equity ratio=(TL/TE) 1.43 1.51 1.8 2.41

Debt/equity ratio=(TL/TE)

From the analysis of the graph we acquire that the debt to equity ratio of Apple Corp. was 1.43 in
2015 and further increased as 1.51, 1.81, and 2.41 in the year of 2016, 2017, and 2018 respectively.
The lower the ratio the better for the company to greater asset coverage of liabilities with own
capital. As in 2015 the ratio of debt to equity of Apple was good but compare to 2015, in 2018 the
ratio increased as 2.41 which indicated that the Corp. wasn’t able to generate sufficient cash flows
from its core operations and which then made the Apple Corp. relied on external debt to stayed
afloat.

EM= (Total Assets/Total Equity)

EM= (Total Assets/Total Equity)

3.41
3.5
2.8
3 2.43 2.51
2.5
2
1.5
1
0.5
0
2015 2016 2017 2018
EM= (Total Assets/Total Equity) 2.43 2.51 2.8 3.41

EM= (Total Assets/Total Equity)

16
The equity multiplier is basically a leverage ratio that measures the amount of company’s asset s
which are financed by its shareholders through comparing total assets with total shareholders
equity. In other words, it shows the assets percentage that are owned by the company’s
shareholders. In the year of 2015, The Apple Corp’s EM ratio was 2.43 and it rose further as 2.51,
2.8 and 3.41 in 2016, 2017, and 2018. The higher ratio of Apple Corps indicated that in compare
to 2015 the leverage ratio was rose up by 3.41 in the year of 2018 which implied that the company
considered to be in high leveraged which is riskier for the investors because that indicated that the
Corp. had actually owned less of the company’s asset than current creditors.

Long term solvency

Long term solvency

0.47
0.5 0.42
0.37
0.4 0.31
0.3
0.2
0.1
0
2015 2016 2017 2018
Long term solvency= LTD/(LTD+TE 0.31 0.37 0.42 0.47

Long term solvency= LTD/(LTD+TE

Acceptable solvency ratios differ from company to company but as a general rule of thumb, the
firm or company which have a solvency ratio of greater than 20% considered to be the healthy
firm. Basically, it examines a company’s capability to meet with its long-term obligations. From
the graph, it showed that from 2015 to 2018 the ratio had increased relatively and, in the year of
2018, the solvency ratio was 0.47 or 47% which is considered to be healthy company.

17
 PROFITABILITY RATIO
Net Profit margin

Net Profit margin

22.85%
23.00%
22.41%
22.50%
22.00%
21.50% 21.19% 21.09%

21.00%
20.50%
20.00%
2015 2016 2017 2018
Profit margin = Net Income/Sales 22.85% 21.19% 21.09% 22.41%

Profit margin = Net Income/Sales

In 2015, the net profit of Apple Corp. was 22.85% of its total revenue. It decreased to 2.19% in
2016 and in 2017 again fell to 21.09% and then had slightly increase to 22.41% in 2018. It is
preferable to the investors that a company has high net profit margin. Compare to the 2015 year,
2018 has the relatively low net profit margin, so it is not good for Apple Corp.

Gross profit margin

Gross profit margin

40.50% 40.06%
40.00%
39.08%
39.50%
39.00% 38.47% 38.34%
38.50%
38.00%
37.50%
37.00%
2015 2016 2017 2018
Gross profit margin=Gross profit/Sales 40.06% 39.08% 38.47% 38.34%

Gross profit margin=Gross profit/Sales

18
The gross profit of Apple Corp. in 2015 was 40.06% of its total revenue. In 2016, it saw an decrease
to 39.08% and in 2017 this was reduced further by 38.47%, and again in 2018 the gross profit
margin fell to 83%. For any company, investors prefer a higher gross profit margin to a lower one
as a higher margin indicates that it can make a reasonable profit on its sales. Comparing Apple
over the past 4 years based on gross profit margin, it is clear that the performance in 2018 was
poorer than the other 3 years. The reason was mostly because of the high cost of goods sold.
Operating profit margin

Operating profit margin

32.00% 30.48%
30.00% 27.83%
26.76% 26.69%
28.00%
26.00%
24.00%
2015 2016 2017 2018
Operating profit margin=EBIT/Sales 30.48% 27.83% 26.76% 26.69%

Operating profit margin=EBIT/Sales

The operating profit margin for the year 2015 was 30.48% for Apple. It had a decrease of 2.65%
in 2016 and 2017 it falling to 26.76% then again falling to 26.69% again in 2018. Just like gross
profit margin, investors prefer a high operating margin. Based on the time series analysis of
operating profit margin, it is clear that among the 4 years, the best year for Facebook was 2015
with the highest operating profit margin.
Return on asset

Return on Asset
18.39%
16.28%
20.00% 14.20% 12.88%
15.00%
10.00%
5.00%
0.00%
2015 2016 2017 2018
Return on Asset= Net profit/Total
18.39% 14.20% 12.88% 16.28%
Assets

Return on Asset= Net profit/Total Assets

19
The return on asset of Apple for the year 2015 was 18.39%. It decreased to 14.20%, 12.88% in
2016, 2017 and again started to increase to 16.28%% in 2018. The higher the return on asset, the
better it is for the company. But Apple has a very low return on asset which indicates that its assets
cannot generate high profit. The fact that the ROA is decreasing over the 3 years period is not a
good sign, which is low. 2018 was the better year between 2016 and 2017 years based on return
on asset but not so good compare to the year of 2015.

Return on Equity

Return on Equity
55.56%
60.00% 44.74%
50.00% 35.62% 36.07%
40.00%
30.00%
20.00%
10.00%
0.00%
2015 2016 2017 2018
Return on Equity=Net profit/Total
44.74% 35.62% 36.07% 55.56%
Equity

Return on Equity=Net profit/Total Equity

The ROE is a profitability ratio which indicates the capability of a firm to raise profits from its
shareholders investments in the company. In 2015, the ROE was 44.74%. Though in 2016 and
2017 the ratio falling to 35.62% and 36.07%. But in the year of 2018, the ROE rose up by 55.56%
which indicated that company has used up its investors fund effectively.

20
 COVERAGE RATIOS

Times interest earned

Times interest earned

97.18
100

80

60 41.23
40 26.41
21.88
20

0
2015 2016 2017 2018
Times interest earned =
97.18 41.23 26.41 21.88
EBIT/INTEREST

Times interest earned = EBIT/INTEREST

The time interest earned ratio analysis shows a company’s ability to continue to service its debt.
Apple Corp. had high ratio in 2015 as 97.18 but after that the ratio declined at a tremendous way.
And on 2016, 2017 & 2018 the ratio was 41.23, 26.41, and 21.88. A high ratio of time interest
indicate that a firm is capable to meet its interest obligations because the earnings of a company is
greater than annual interest obligations. Due the firm’s ratio in 2018 wasn’t so high, it’s hard for
Apple to meet its interest obligations.
Cash coverage

Cash coverage
112.53
120
100
80 48.44
60 30.78 25.25
40
20
0
2015 2016 2017 2018
Cash coverage = (EBIT +
112.53 48.44 30.78 25.25
DEPRICIATION)/INTEREST

Cash coverage = (EBIT + DEPRICIATION)/INTEREST

21
The cash coverage ratio is necessary to determine the amount of available cash to pay off for a
borrower’s interest expense, and is evolved as a cash available ratio to the amount of interest to be
paid. To show an efficient capability to pay off, the ratio of cash coverage should be substantially
greater than 1:1. In the year of 2015 the cash coverage ratio of Apple Corp. was 112.53 and then
it declined in the following year of 2016 as 48.44 and further started to decline in 2017 as 30.78.
Than in 2018, it again falling to 25.25. Gradually the creditors prefer high cash leverage ratio, as
it indicates that the firm can easily pay off its debt obligations. But as in 2018 the ratio declined to
25.25 compare to the early year of 2015 which was 112.53, it seemed the Apple Corp is not I good
position in terms of its cash leverage ratio.

MARKET RATIO

P/E Ratio

P/E Ratio

20 16.41 16.08

15 12.42 12.17

10

0
2015 2016 2017 2018
) P/E Ratio=Price per share/ EPS 12.42 12.17 16.41 16.08

The price to earnings ratio of Apple was 12.42 for the year 2015. It saw a slight decline in the year
2016 and went down to 12.17 but in 2017, the ratio went up to 16.41. Though in 2018 the price to
earning of Apple slightly declined to 16.08. The price to earnings ratio compares the market price
of the share to the earnings per share for the company. Therefore, the ratio signifies that in 2015,
for $1 in earnings per share, investors are willing to pay $12.42 in market price per share. The
reason it declined by a slight percentage in 2018 was because of fall in market price of the share.

22
 Earnings per share

EPS
11.91
12
9.22 9.21
10
8.31

0
2015 2016 2017 2018
EPS=Net income/number of shares 9.22 8.31 9.21 11.91

EPS=Net income/number of shares

Apple had an EPS of 9.22% in the year of 2015, but in 2016 according to the data, its EPS with a
decrease of 8.31% during the time period. The decrease is because of the decreasing net income.
Though from 2017 the EPS had started to grow by 9.21% and in 2018 the EPS was 11.91%. The
increase is because of the increasing net income. At present, Apple’s EPS is $11.91, which means,
it provides earnings of $11.91 per share, above than the industry average. The difference in
earnings is ominous for the company, because if the company continues to provide comparatively
earnings per share, the investors will eventually be started to gain confidence on them.

23
 Valuation of Olympic industry limited

Forecasted free cash flow:

The forecasted cash flow along with calculate FCF of year 2019 to next five year are given blow.
Year 2019 Year2020 Year 2021 Year 2022 Year 2023

Cash Flow 5,004,391,151 3,456,093,852 3,361,270,477 3,253,171,829 3,129,939,371

From Asset
(OCF-
NCS-
Change in
NWC)

The sustainable growth rate for the cash flows are given blow:

Retainton rate 50%

ROE .28410733

SGR 14%

Justification: in this report, we have decided to use company’s sustainable growth rate for
forecasting the cash flow of Olympic industry limited. SGI is the rate at which the company can
grow by taking the help long term debt (leverage) along with the internal funds but no external
equity. Why we select SGI growth rate, because it minimizes the risk of taking other growth rates
that are directly related to market risk as well as macroeconomic conditions, such as Historical
Growth Rate or even the Revenue Growth Rate. This minimizes standard deviation of errors and
makes forecasting more realistic and accurate. Plus, in the recent years, Bangladesh Fast Moving
Consumer Goods (FMCG) expected to grow at a rate of 10.3%, so it’s better to take a growth rate
that is near to the forecasted average industry growth rate.

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Calculating Beta:

Beta 0.022

A beta coefficient is a measure of the systematic risk, of an individual stock in comparison to the
unsystematic risk of the entire market. also Beta used in the capital asset pricing model (CAPM),
which calculates the expected return of an asset using beta and expected market returns.

Here if the market portfolio increase by 1% the returned from Olympic will increase by .22 percent.

Weighting average cost of capital (WACC) calculation:

Cost of Debt 6%

Cost of equity 6.22%

Tax rate 25%

Weightage of Debt 0.27187

Weightage of Equity 0.728122

WACC 5.79%

For calculating the cost of capita, we calculate weighted average cost of capital. To calculate
government bond is about 5%. The market return is assumed equal to the prevailing FDR rate in
BANGLADESH 10.50 %( We have collected The FDR rates of some of the banks and took the
average of them). It’s better to assume the market return equal to that of FDR rates since it is less
risky and also viable and this is an average rate that all the banks give out on deposits customer
put in. interest rate of Olympic industry LTD 6%. It has 27% debt finance.

Calculation of entire company value:

We calculate terminal value includes the value of all future cash flow even when they are not
considered in particular project period. The formula is = (CFFAfinal year (1+g))/ (WACC-g).

25
Here final year forecasting value is 3129939371. And we calculate the WACC of Olympic
industry limited in 5.79%. And long term growth rate is 5%. So the terminal value of Olympic is
3,129,939,371.

CFFAfinal year 3,129,939,371

WACC 5.79%

Long-term cash flow growth 0.05

Terminal value 418,014,394,492.05

Calculating EV for Olympic indirectly limited

The enterprise value (EV) is an alternative valuation metric that reflects the market value of an
entire company. Here we discount all the forecast value plus terminal value.

Interest : 299,438,775.71

Total Debt : 4,863,821,042.44

Years of Maturity : 20

Cost of Debt: 0.061564513

The value of the entire company 331,152,637,210.19

EV tell us the worth of the company, in other words theoretical take over price of the Olympic
industry limited is 331,152,637,210.19.

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Fear value of the company:

Market Value of Debt (Vd): 93,107,440,322.14

Fair Value of Equity(EV- DEBT) 238,045,196,888

Share Outstanding 199,938,886

Value per share 1,190.59

Market Value per Share at the moment 225.60

That Means the Share Price of Olympic industry limited is Undervalued.

Limitations

Ratios are important tools of financial statement analysis. It helps to get better understanding of
cash flow of a business, performance and financial performance. However, there are some
limitations of ratio analysis.

1. Ratio analysis is based on historical results. This does not mean that a firm will maintain the
same performance in the future. All of the ratios are calculated based on the financial historical
results of Apple.

2. Ratios are dependent on the financial statements of company. A firm can make a few year-end
changes to their money related explanations, to move forward their ratios. At that point the ratios
conclusion up being nothing but window dressing.

3. Accounting ratios totally overlook the subjective viewpoints of Apple.

4. There are no standard definitions of the ratios. So, Apple may be utilizing diverse equations for
the ratios. One such case is current ratio, where a few corporations take into thought all current
liabilities but others overlook bank overdrafts from current liabilities whereas calculating current
ratio.

27
5. Ratios don't resolve any monetary issues of the company rather these give an understanding of
a firm’s financial performances.

6. For comprehensive financial statement analysis ratios can’t be the only tool.

7. Ratios disregard the price level changes due to inflation. Many ratios are calculated utilizing
verifiable costs and they neglect the changes in cost level between the periods. This does not reflect
the proper budgetary situation.

8. Different companies have different strategies. Some ratios may show ambiguous performance
of a company. Comparison between two firms may not be accurate.

9. The methods of equity valuation doesn’t take into account intangible assets of the company such
as brand loyalty, customer retention and ownership of intangible assets.

10. Analysts make many assumptions while valuing equity of a company such as the company will
reinvest its earnings. But these assumptions may be wrong. The company may not re-invest its
income or may not gain the predicted cash flow.

28
 References
Bangladesh Bank. (n.d.). Retrieved from Bangladesh Bank web site:
https://www.bb.org.bd/econdata/bop.php
investing.com. (n.d.). Retrieved from investing.com's web site:
https://www.investing.com/currencies/usd-bdt-historical-data
Lanka Bangla Financial protal. (2019, May 3). Retrieved from Lanka bangla's Web site:
https://lankabd.com/Company/OverviewV2?symbol=BATASHOE
Yeahoo Finance . (2019, April 26). Retrieved from Yeahoo Finance's web site:
https://finance.yahoo.com/

Appendix
Olympic Industries Ltd.
Proforma Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue/ Sales/ Turnover 14,738,491,228.92 16,801,880,000.97 19,154,143,201.10 21,835,723,249.26 24,892,724,504.16
Cost of goods sold/ Factory Overhead 9,926,799,229.08 11,316,551,121.15 12,900,868,278.11 14,706,989,837.05 16,765,968,414.23
Gross Profit 4,811,691,999.84 5,485,328,879.82 6,253,274,922.99 7,128,733,412.21 8,126,756,089.92
OPERATING EXPENSES: 2,258,697,181.38 2,574,914,786.77 2,935,402,856.92 3,346,359,256.89 3,814,849,552.86
Administrative & selling overhead 374,562,799.26 427,001,591.16 486,781,813.92 554,931,267.87 632,621,645.37
Selling & Distribution Expenses 1,706,842,588.74 1,945,800,551.16 2,218,212,628.33 2,528,762,396.29 2,882,789,131.77
Financial expenses 177,291,793.38 202,112,644.45 230,408,414.68 262,665,592.73 299,438,775.71
OPERATING PROFIT/(LOSS) 2,552,994,818.46 2,910,414,093.04 3,317,872,066.07 3,782,374,155.32 4,311,906,537.07
Other income/(expenses) 325,956,694.50 371,590,631.73 423,613,320.17 482,919,185.00 550,527,870.90
Fair Value adjustments of biological assets 6,585,871.20 7,507,893.17 8,558,998.21 9,757,257.96 11,123,274.08
PROFIT BEFORE PPF & WF 2,872,365,641.76 3,274,496,831.61 3,732,926,388.03 4,255,536,082.36 4,851,311,133.89
Provision for contribution to PPF & WF 136,779,315.84 155,928,420.06 177,758,398.87 202,644,574.71 231,014,815.17
PROFIT BEFORE TAX 2,735,586,325.92 3,118,568,411.55 3,555,167,989.17 4,052,891,507.65 4,620,296,318.72
Tax expenses: 701,824,402.74 800,079,819.12 912,090,993.80 1,039,783,732.93 1,185,353,455.54
Current tax 683,896,581.48 779,642,102.89 888,791,997.29 1,013,222,876.91 1,155,074,079.68
Deferred tax (expenses)/income 17,927,821.26 20,437,716.24 23,298,996.51 26,560,856.02 30,279,375.86
NET PROFIT/(LOSS) AFTER TAX 2,033,761,923.18 2,318,488,592.43 2,643,076,995.36 3,013,107,774.72 3,434,942,863.18
divident paid (50%) 1,016,880,961.59 1,159,244,296.21 1,321,538,497.68 1,506,553,887.36 1,717,471,431.59
Retaintion Earning 1,016,880,961.59 1,159,244,296.21 1,321,538,497.68 1,506,553,887.36 1,717,471,431.59

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 Olympic Industries Ltd.
Proforma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Non-current assets: 3,174,161,955.00 3,174,161,955.00 3,174,161,955.00 3,174,161,955.00 3,174,161,955.00
Property Plant & Equipment 2,243,553,821.00 2,243,553,821.00 2,243,553,821.00 2,243,553,821.00 2,243,553,821.00
Capital Work-in-process 930,608,133.00 930,608,133.00 930,608,133.00 930,608,133.00 930,608,133.00
Intangible Assets 1.00 1.00 1.00 1.00 1.00
Current Assets: 8,712,782,118.48 9,932,571,615.07 11,323,131,641.18 12,908,370,070.94 14,715,541,880.87
Inventories/Closing Stock 1,306,910,332.00 1,489,877,778.48 1,698,460,667.47 1,936,245,160.91 2,207,319,483.44
Trade/ sundry, debtors and bills Receivables 203,444,347.56 231,926,556.22 264,396,274.09 301,411,752.46 343,609,397.81
Advance, Deposits & Prepayments 1,725,403,875.00 1,725,403,875.00 1,725,403,875.00 1,725,403,875.00 1,725,403,875.00
Investments 4,526,599,049.94 5,160,322,916.93 5,882,768,125.30 6,706,355,662.84 7,645,245,455.64
Cash & Cash Equivalents 525,900,525.00 599,526,598.50 683,460,322.29 779,144,767.41 888,225,034.85
TOTAL ASSETS 11,886,944,073.48 13,106,733,570.07 14,497,293,596.18 16,082,532,025.94 17,889,703,835.87
Shareholders' Equity: 7,321,074,680.59 8,480,318,976.80 9,801,857,474.48 11,308,411,361.84 13,025,882,793.43
Share Capital 1,999,388,860.00 1,999,388,860.00 1,999,388,860.00 1,999,388,860.00 1,999,388,860.00
Retained Earnings 5,321,685,820.59 6,480,930,116.80 7,802,468,614.48 9,309,022,501.84 11,026,493,933.43
Non-Current Liabilities: 2,299,436,554.55 2,042,681,157.56 1,749,980,004.99 1,416,300,691.06 1,035,906,273.17
Deferred Tax Liabilities 141,357,746.26 161,795,462.50 185,094,459.01 211,655,315.03 241,934,690.89
Lease Obligations 5,283,066.66 5,283,066.66 5,283,066.66 5,283,066.66 5,283,066.66
Long Term Loan 2,152,795,741.63 1,875,602,628.40 1,559,602,479.32 1,199,362,309.37 788,688,515.62
Current Liabilities: 2,266,432,838.34 2,583,733,435.71 2,945,456,116.71 3,357,819,973.05 3,827,914,769.27
Currrent Portion of Long Term Loan 198,823,606.08 226,658,910.93 258,391,158.46 294,565,920.65 335,805,149.54
Current Portion of Lease Obligations 37,546,554.36 42,803,071.97 48,795,502.05 55,626,872.33 63,414,634.46
Short Term Loan 157,619,481.42 179,686,208.82 204,842,278.05 233,520,196.98 266,213,024.56
Trade & Other Payables/ Creditors for goods 729,546,375.54 831,682,868.12 948,118,469.65 1,080,855,055.40 1,232,174,763.16
Advance Against Sales 196,471,878.42 223,977,941.40 255,334,853.19 291,081,732.64 331,833,175.21
Interest Payable 157,390.68 179,425.38 204,544.93 233,181.22 265,826.59
Accrued Expenses/Liabilities for expenses 73,516,101.12 83,808,355.28 95,541,525.02 108,917,338.52 124,165,765.91
Worker's Profit Participation Fund/ Employee benfit obligations 288,504,338.34 328,894,945.71 374,940,238.11 427,431,871.44 487,272,333.44
Current Tax Liability/Provision for Income Tax 442,873,244.28 504,875,498.48 575,558,068.27 656,136,197.82 747,995,265.52
Creditors for services 15,183,401.22 17,309,077.39 19,732,348.23 22,494,876.98 25,644,159.75
Liabilities for Other Finance 76,268,698.38 86,946,316.15 99,118,800.41 112,995,432.47 128,814,793.02
Unclaimed Dividend 49,921,768.50 56,910,816.09 64,878,330.34 73,961,296.59 84,315,878.11
Total Liabilities 4,565,869,392.89 4,626,414,593.26 4,695,436,121.69 4,774,120,664.10 4,863,821,042.44
TOTAL EQUITY AND LIABILITIES 11,886,944,073.48 13,106,733,570.07 14,497,293,596.18 16,082,532,025.95 17,889,703,835.87

FCF of Olympic Industries Ltd.

Year 1 Year 2 Year 3 Year 4 Year 5

Operating Cash Flow(Net profit+Depreciation+Interast) 2,211,053,717 2,520,601,237 2,873,485,410 3,275,773,367 3,734,381,639

Net Capital Spending (ending net fixed asset - beginning net

0 0 0 0 0
fix asset + Depreciation)

Change in Net Working Capital (ending NWC - beggning

-2,793,337,434.93 -935,492,615.43 -487,785,066.96 22,601,538.29 604,442,268.28
NWC)

Cash Flow From Asset (OCF-NCS-Change in NWC) 5,004,391,151 3,456,093,852 3,361,270,477 3,253,171,829 3,129,939,371

30